Monday Options Update: PBR, F, FXI & NXY

Petroleo Brasileiro SA ADR (NYSE:PBR) – The Brazilian oil company’s shares recovered slightly today, rising 0.65% to $39.03, amid higher commodity prices and a rebound in the price of crude oil. Option traders are still initiating bearish trades on the stock though, which suggests today’s modest rebound could be short-lived. One investor purchased a put spread in the January 2011 contract, establishing long-term downside protection. It appears the trader bought 5,000 in-the-money puts at the January 2011 $40 strike for a premium of $6.50 each, marked against the sale of 5,000 puts at the lower January 2011 $30 strike for an average premium of $2.13 apiece. The net cost of the transaction amounts to $4.37 per contract. The parameters of the trade indicate an effective breakeven share price of $35.63, which marks the price at which shares must trade at (or below) before downside protection kicks in for the put-spreader.

Ford Motor Co. (NYSE:F) – Shares of the American automaker, whose sales increased 24% year-over-year in the month of January, rallied 3.40% to $11.28 today. Notable options activity on the stock involved long-dated put options in the January 2012 contract. It looks like at least one investor purchased 20,000 puts at the January 2012 $5.0 strike for a premium of $0.58 per contract in combination with the purchase of an equivalent number of shares of the underlying stock. The ‘married-puts’ picked up by options players provide long-term downside protection should Ford’s shares collapse in the next two years. But, the trader(s) are most probably taking a long-term bullish stance on Ford by taking a long stock position and anticipating share price appreciation in the next couple of years to expiration.

iShares FTSE/Xinhua China 25 Index Fund (NYSEARCA:FXI) – Shares of the FXI exchange-traded fund, which invests in twenty-five of the largest and most liquid Chinese companies, rebounded slightly today, rising 0.40% to $37.72. The value of the fund’s shares eroded significantly during the last trading week, but the modest rally today has perhaps inspired some investors to pursue bullish positions using options. Optimism appeared in the May contract where it looks like one trade sold 5,000 puts at the May $37 strike for a premium of $2.50 each in order to finance the purchase of 5,000 calls at the higher May $38 strike for $2.41 apiece. The investor pockets a net credit of $0.09 per contract on the trade, which he keeps as long as shares of the underlying stock trade above $37.00 through expiration day. Additional profits accumulate to the upside if the FXI’s share price breaks out above the $38.00-level ahead of expiration in approximately four months time.

Nexen Inc. (NXY) – Shares in oil and gas exploration company, Nexen Inc. are higher by 27 cents or 1.3% at $22.30, while a large options play grabbed our attention. It looks as though a single investor sucked up 3,000 calls expiring in the March contract that would grant buying rights over 300,000 shares in the company at a fixe $25.00. If the share price doesn’t rise by at least 12.1% between now and then the investor will possibly have wasted the 39 cent premium spent today. Shares had been grinding lower last week and it appears that the fact the market isn’t following through after the price of oil reached $71.00 in an over supplied crude oil market, might have given this investor some reason to look to the near-term upside. Nexen’s share price hasn’t traded above $25.00 since November 23. Implied options volatility rose slightly to 44.5% today.